TAUBE: Another Greek tragedy in the making?

New bailout is nation’s last chance to build market-based economy

By By Michael Taube - -
Thursday, June 21, 2012

Earlier this week, Greece held its second set of legislative elections in two months. New Democracy, a center-right party that supports the bailout plan proposed by the eurozone and International Monetary Fund, will form a coalition government. Hence, the shattered Greek economy - and equally unstable European financial markets - will avoid a massive collapse.

That’s what investors and creditors are hoping (and possibly praying) for, anyway. In reality, the Greek elections have provided only an extremely short-term solution to a grave financial situation. Until this country reforms the way it views fiscal prudence, good governance and the importance of free-market economics, nothing has really changed.

Greece used to understand these principles. From 2000 to 2007, the domestic economy increased on an annual basis by approximately 4.2 percent. Interestingly, this occurred under the watch of two governments of different ideological bents: Konstantinos Simitis’ PASOK (socialist party) and Konstantinos Karamanlis’ New Democracy. Greece was seen by many observers as a model of European economic efficiency, and it earned high international praise.

Alas, the global recession brought Greece’s financial miracle to its knees. The country’s two major industries - shipping and tourism - were crushed, leading to heavy financial losses and escalating unemployment rates. The strategy of maintaining structural deficits, long supported by Greek governments of all political stripes, brought down the economy with a loud thud. Various austerity packages were passed by then-Prime Minister George Papandreou’s PASOK government in 2010 and 2011, but the economy just kept sinking.

Eurozone countries, realizing Greece’s collapse potentially could produce a domino effect with their own economies, aligned with the IMF and proposed a massive $165 billion bailout plan. The plan included a provision for banks to write off 50 percent, or roughly $127 billion, of the country’s total debt. This hopefully would give the Greeks enough time to rebuild part or all of their shattered economy, and give Europe some necessary breathing room.

Yet it almost didn’t work.

Mr. Papandreou rejected the bailout plan in November, and wanted to hold, of all things, a national referendum on this question. The Greek prime minister’s proposal was nothing short of incredible as time was of the essence, yet he wanted to play games with the global economy. After an international outcry, he resigned. A temporary coalition government led by former European Central Bank Vice President Lucas Papademos took control, and a new election was held May 6.

This election turned into an absolute mess. The pro-bailout New Democracy, led by economist Antonis Samaras, won the most seats (108 out of 300) but picked up only 18.8 percent in popular support. Many of its potential coalition partners, including PASOK, were hammered. The anti-bailout vote was split wildly across the political spectrum: The ultraleftist Syriza came in second, while the Communist Party and ultra-nationalist Golden Dawn picked up seats. No one was able to build a coalition, and a caretaker government, led by Panagiotis Pikrammenos, was put in place to serve until new elections, which were held June 17.

Fortunately, things came out somewhat better for Greece the second time around. New Democracy won 29.7 percent of the vote, and 129 seats. It was able to form a coalition - and a working majority - with two moderate left-wing parties, PASOK and DIMAR (Democratic Left). The opposition parties, including Syriza, Golden Dawn, the Communists and ANEL (Independent Greeks), will be vocal but are all over the political map. In the short term, political stability is in the cards for the Hellenic Parliament.

But if new Greek Prime Minister Antonis Samaras really is serious about saving his country, he can’t just take the bailout money and run. He needs to reform Greece - and fast. Here are some straightforward suggestions: dramatically reduce the state’s role and influence; slash the public sector; decrease union control and interference; support smaller and effective government; reduce taxes for individuals and corporations; and, above all, promote capitalism, liberty and freedom for all Greek citizens.

Mr. Samaras also will have to rebuild the tattered shipping and tourism industries. Without them, Greece will not be able to properly compete on a global scale. Hence, the New Democracy-led coalition government needs to establish tax incentives for domestic and international companies, remove harmful financial barriers and foreign ownership rules, and promote greater degrees of trade liberalization.

These measures, and others, will show that Mr. Samaras is at least serious about his support of the bailout plan and that he will use these funds to help rebuild Greece’s economy and society. But if he doesn’t go this route of transforming long-held - and poorly thought out - Greek beliefs about politics and economics, my guess is the coalition government will collapse later this year. The eurozone will therefore be thrown into another period of economic turmoil.

If this happens, Greece shouldn’t expect another handout from Europe. Rather, all it likely will get is the equivalent of a political pink slip.

Michael Taube is a columnist and former speechwriter for Canadian Prime Minister Stephen Harper.